Many Variables Affect Netherlands Income Tax Withholding


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Payroll practitioners in the Netherlands commonly use a set of four payroll tax brackets for withholding on employment income that are derived in part from income tax data and in part from social tax data, a payroll manager said May 18.

The first set of two brackets contains total tax rates that are composites of income tax and social tax rates. The second set of two brackets contains income tax rates but not social tax rates, said Max van der Klis-Busink, payroll manager at Royal Dutch Shell PLC. 

In the Netherlands, income tax on employment income is commonly referred to as wage tax, he said.

The applicable income tax withholding rates are differentiated based on whether an employee is at least the pensionable age, at which time the employee no longer is required to be assessed a social tax contribution for old age pensions and unemployment, van der Klis-Busink said at the annual American Payroll Association Congress at National Harbor, Md. 

Employees who reach the pensionable age are eligible for pensions under the country's General Old Age Pensions Act, known in Dutch as the Algemene Ouderdomswet and abbreviated as AOW, van der Klis-Busink said. 

All employees in the Netherlands are assessed a social tax contribution for sickness and maternity benefits and a social tax contribution for survivors’ benefits, he said.

The income ranges that apply to each of the Netherlands’ four income tax brackets, the applicable tax rates for the brackets, and the degree to which the applicable income ranges and tax rates differ between employees who have not reached the pensionable age and those who have are subject to change on an annual basis, van der Klis-Busink said.

For 2018, the first income tax bracket includes a wage tax of 8.9 percent, a sickness and maternity benefits contribution of 9.65 percent, and a survivors’ benefits contribution of 0.1 percent, and employees who have not reached the pensionable age also are assessed an old age pensions and unemployment contribution of 17.9 percent, van der Klis-Busink said. 

The total rates for the first tax bracket are 36.55 percent for employees younger than the pensionable age and 18.65 percent for employees who have reached the pensionable age, he said.

The second income tax bracket’s 2018 rates include a wage tax of 13.2 percent and the aforementioned social tax percentages, with a total rate of 40.85 percent for employees younger than the pensionable age and a total rate of 22.95 percent for employees who are at least the pensionable age, van der Klis-Busink said.

Regardless of whether Netherlands employees are younger than or at least the pensionable age, they are assessed for 2018 a wage tax of 40.85 percent for the third income tax bracket and a wage tax of 51.95 percent for the fourth income tax bracket and are not assessed social taxes for these brackets, van der Klis-Busink said.